The Oil Crunch

"The Oil Crunch - A wake-up call for the UK economy" is the second report of the UK Industry Taskforce on Peak Oil & Energy Security. This Taskforce is a self-appointed group of 6 companies - Arup, Foster and Partners, Scottish and Southern Energy, Solarcentury, Stagecoach Group and Virgin Group (www.peakoiltaskforce.net).

The report argues that an "oil crunch" will occur within 5 years. Whereas we failed to prepare for the credit crunch, we do have time to prepare for the oil crunch: "we must plan for a world in which oil prices are likely to be both higher and more volatile and where oil price shocks have the potential to destabilise economic, political and social activity."

The report gives a good explanation of what peak oil is and why it is likely to happen. An expert opinion from Chris Skrebowski compares new oil projects coming on stream with declining output from existing production. He suggests that oil prices will continue to rise gradually until about 2014, alongside a recovering economy. Around 2014 the world's increasing demand for oil will exceed supply: prices will spike as they did in 2008, pushing the world back into recession. Thereafter oil production will continue to decline, with the economy repeating this "downwards oscillation".

Dr Robert Falkner of the LSE considers the impact of this supply crunch on the British economy. He believes that the oil crunch is unlikely to have a "catastrophic" impact on the UK in the next 5-10 years. But he does agree that the transport sector, in particular, will be hit hard by rising fuel prices and the lack of any viable alternatives. This in turn will disrupt the just-in-time distribution we rely on for our food, and will also disrupt other businesses. "Continued dependence on oil...will cost the UK economy dearly."

Finally the authors make a number of policy recommendations. These include a shift from private to public transport as well as to electric vehicles; policies to protect disadvantaged people from rising food and heating prices; and a shift to renewable electricity generation, while recognising that this can not happen quickly enough to offset the imminent energy crunch.

The most positive aspects of the Oil Crunch report is the press coverage it has attracted - due in part to Richard Branson's celebrity status. All the quality UK papers ran prominent stories, and even the Wall Street Journal covered it. My issue with it is its lack of radicalism. It comes from the business world, and it seems to suggest that life will continue pretty much on its current trajectory, provided we can deal with some significant obstacles. Next month I'll review another report that reaches very different conclusions.

Picture: Tully speaking at EAFL's second End of Oil Conference, UEA, March 2006